November’s inflation reading is holiday gift for the Fed

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A trader works as a screen displays a news conference by Federal Reserve Board Chair Jerome Powell following the Fed rate announcement, on the floor of the New York Stock Exchange on Dec. 13, 2023.

Brendan Mcdermid | Reuters

Just in time for the holidays, the Federal Reserve received a slate of inflation data to help inform its policy decision-making process.

The core personal expenditures price index, just released Friday, shows slowing inflation that’s approaching the central bank’s stated 2% target.

The central bank’s preferred measure of inflation — the core PCE, which excludes food and energy prices — grew 0.1% in November and was up 3.2% from a year ago. Economists polled by Dow Jones were forecasting a 0.1% monthly gain and a 3.3% rise from 12 months earlier.

Most notably, on a six-month basis, core PCE rose 1.9%, showing notable progress toward the Fed’s goal of a 2% annual inflation rate.

The PCE reading is just the latest in a long line of data points that reflect cooling prices.

Falling inflation trends

The headline consumer price index, which measures the prices paid for goods and services, rose 0.1% in November. It was up 3.1% from a year ago.

Consider that the headline CPI reading peaked at 9.1% in June 2022.

Core CPI rose 0.3% in November and 4% year over year.

Meanwhile, the producer price index, which measures inflation at the wholesale level, was unchanged in November and rose 0.9% over the past 12 months. 

Other more closely watched measures of inflation have come down as well.

The latest estimate of third-quarter gross domestic product, issued Thursday, showed core PCE grew 2% during the period. This exactly matches the Fed’s stated 2% target.

Meanwhile, the New York Federal Reserve’s multivariate core trend model of PCE inflation has fallen from a peak of 5.44% in June of last year to 2.60% in October.

When many of these readings are annualized over the course of the past six months, they are all within striking distance of the Fed’s 2% target.

Immaculate disinflation

San Francisco Fed president Mary Daly told The Wall Street Journal earlier this week that rate cuts could be necessary next year to avoid overtightening.

Given that so much data points to further deceleration in inflation, whether it’s the cost of oil, natural gas or commercial real estate, prices are coming down.

Immaculate disinflation is upon us in this season of relative joy.

Even consumer expectations of inflation have declined precipitously in recent weeks.

Raise a glass this holiday season to a winter solstice that’s ushering in new and extended life for the economy. It is a time of renewal.

Indeed, even the PNC Christmas Price Index, which measures the cost of all the gifts sung about in “The Twelve Days of Christmas,” was up 2.7% in 2023 versus 10.5% last year.

Now, that’s a tune the Fed should be humming quite happily to itself.

 — CNBC contributor Ron Insana is chief market strategist at Dynasty Financial Partners.

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